GST Valuation Methods for Specific Business Activities
This article outlines specific GST valuation rules for six distinct business scenarios, which are optional alternatives to the standard ad-valorem method. It details calculation methods for foreign currency exchange (including scenarios with and without Indian Rupees), air travel agent commissions, life insurance policies (covering risk, investment, and annuity types), and the sale of second-hand goods based on ITC availability. Additionally, it clarifies how to determine the value of supply for tokens and vouchers, and services provided between distinct business entities.
Typically, Goods and Services Tax (GST) is calculated on an ad-valorem basis, meaning the tax is a percentage of the value of goods and services supplied. For most transactions, the invoice value serves as the taxable amount. However, for six specific business categories, GST regulations outline distinct, optional valuation methodologies. Suppliers retain the choice to use either these special rules or the standard valuation principles.
Foreign Currency Exchange Transactions
Method 1: Exchange Involving Indian Rupees or Without RBI Rate
Scenario 1: Exchange Including Indian Rupees
When one currency in the exchange is Indian Rupees (INR), the value of supply is determined by multiplying the number of currency units by the difference between the buying or selling rate and the RBI reference rate at the time of exchange. For instance, if USD 100 is exchanged for INR at 65 per USD, and the RBI rate is 64, the value of supply is (65-64) * 100 = INR 100, on which GST applies. If an RBI reference rate is unavailable, the value of supply becomes 1% of the gross INR amount received or provided by the exchanger. In the previous example, if the RBI rate was absent and INR 6,200 was involved, the value would be 1% of INR 6,200, which is INR 62.
Scenario 2: Exchange Without Indian Rupees
If neither currency exchanged is INR (e.g., USD to POUNDS), the value of supply is 1% of the lower INR equivalent amount. For example, if USD 9,000 converts to 4,500 POUNDS, and the RBI rates are INR 63 per USD and INR 82 per POUND, the INR equivalents are:
- USD 9,000 * INR 63 = INR 5,67,000
- POUNDS 4,500 * INR 82 = INR 3,69,000
The lower amount is INR 3,69,000, so the taxable value of service is 1% of INR 3,69,000 = INR 3,690.
Method 2: Tiered Valuation
This alternative method can be chosen but must be consistently applied throughout the financial year.
| Transaction Value (INR) | Value of Supply Calculation |
|---|---|
| Up to INR 1,00,000 | 1% of gross amount or INR 250, whichever is higher |
| INR 1,00,001 to INR 10,00,000 | INR 1,000 + 0.50% of (gross amount - INR 1,00,000) |
| Above INR 10,00,000 | INR 5,000 + 0.1% of (gross amount - INR 10,00,000) |
For example, if Mr. A exchanges USD 10,000 at INR 64 per USD, the total value is INR 6,40,000.
Under this method:
- Up to INR 1,00,000: INR 1,000
- For the remaining INR 5,40,000 (INR 6,40,000 - INR 1,00,000): 0.50% of INR 5,40,000 = INR 2,700
- Total value of supply = INR 1,000 + INR 2,700 = INR 3,700.
Air Travel Agent Services
For air travel agents like Yatra or MakeMyTrip, the value of supply for booking air tickets is determined as follows:
- Domestic travel: 5% of the basic fare.
- International travel: 10% of the basic fare.
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